Marketers, is it OK to pay twice for the same lead?

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Remarketing is all the rage. If you’ve been on the Internet lately, you’ve seen remarketing in action. You visit Amazon.com and look at a watch, don’t buy the watch, then suddenly digital ads from the same watch brand are chasing you around NYTimes.com and inside Facebook. Advertisers love remarketing because, well, once a consumer has expressed interest in a product, he or she is more likely to buy if you ping ’em a second time.

But marketers face a dilemma. How do they justify the economics of remarketing? If you spend $1,000 on advertising to generate X number of leads (a “lead” in marketingspeak is usually a respondent who fills out identifying information), but then have to re-chase those same leads with remarketing, you are in essence paying twice to push the same respondents to a sale. You may have spent $40 the first time to get someone to fill out a web lead form. And then you remarket to them again, and spend another $40, and they respond a second time. Was that second $40 spend worth bringing in the same person again?

Elevated lead states

Luckily, we recently read a book on quantum physics (ha) that discussed how particles often have two or more states. So let us suggest that a remarketed lead — a person who comes in a second time after being chased with subsequent advertising — is really a lead in a new “elevated lead” state, like an electron jumping to a higher orbit. These “elevated leads” tend to have a higher conversion rate to sale, because they’ve already considered your product once, and now they are coming back again they are more likely to buy.

Let’s play this out financially. Assume you are a marketing VP in charge of selling $1 million jet engines (a tough sell), and you are willing to spend $40,000 on advertising media for every sale. Your initial leads (created by advertising that gets executives or flight departments to fill out a form on your jet-engine website) cost $40 each. 1% of each lead becomes an “account” in your CRM database that has been qualified as an organization really ready to buy an engine. And then your sales team, mining those qualified accounts, has a 10% close rate to sale. Your model looks like this:

$40 per lead –> 1% conversion to account –> $4,000 cost per account –> 10% close to sale –> $40,000 cost per sale.

So far so good

Groovy. Your leads are coming in to hit your $40,000 budgeted per each big-ticket jet engine sale.

But … you have a bunch of leads that didn’t go anywhere, so you begin retargeting them. Each inbound remarketed lead costs another $40 … but really, it’s $80, because you already spent $40 the first time. Was that $80 total ad expense per “elevated lead” respondent a good investment?

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Our model shows that it is, provided that the remarketed “elevated leads” have a higher conversion rate. In this model, if the conversion rate from people coming in a second time rises from 1% to 2%, the cost per account remains $4,000 … and the cost per sale still hits the target goal of $40,000. The green box at right shows what you should be willing to spend on each second remarketed “elevated lead” — $40, provided they convert through the funnel at a higher rate.

It’s all about elevating the response rate

The punchline of this analysis is yes, you can spend more on remarketing — provided you track the correlated increase in response rates and the cumulative total cost per account (qualified lead) and cost per sale. Any remarketing campaign is in fact paying more, perhaps even double, to bring an existing, stalled lead back into your sales funnel again. But if you can justify that with higher response rates and an acceptable cost per sale, remarketing makes sense.

So bring on the remarketing, marketers. Go chase those stalled leads, and turn them into “elevated leads” like electrons charged for transmission. But be sure you evaluate the funnel metrics closely, because remarketing only works if it generates an acceptable cost per sale. 

One thought on “Marketers, is it OK to pay twice for the same lead?

  1. I love that you are a math hound like me Ben. I sometimes wonder when I see the same TV spot duplicated in the same commercial break if that is a waste or not. Maybe the media placement has to find 10 more places no matter where they are. It really depends on if the extra spend brings the same average result or not. And just because it falls below the average it doesn’t mean a poor investment.

    In Finance using Net Present Value idle money is bad. And often investment choices vary. So it could be investing in the re-targeting is still a higher return than options B and C.

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